3rd Estimate of 1st Quarter GDP Shows Contraction at a 0.2% Rate

the Third Estimate of 1st Quarter GDP from the Bureau of Economic Analysis indicated that our real output of goods and services contracted at a 0.2% annual rate in the 1st quarter, revised from the 0.7% contraction rate reported in the second estimate last month, as fixed investments, exports, and government outlays decreased less than previously estimated, while personal consumption expenditures (PCE) and imports increased more than was reported last month...the GDP deflator, or inflation adjustment, was also revised, from a negative 0.18% to a negative 0.04%, which is reported as unchanged, and as a result current dollar GDP also shrunk at the same 0.2% rate as real GDP did, falling from what would be $17,703.7 billion a year in the 4th quarter to $17,693.3 billion annually in the 1st quarter...although this 3rd estimate is usually thought of as the final reading on the quarter's GDP, it will again be subject to revision on July 30th with the Annual Revision of the National Income and Product Accounts which will be released at that time..

while we cover the details below, remember that the press release for GDP reports all quarter over quarter percentage changes at an annual rate, which means that they're expressed as a change a bit over 4 times of that what actually occurred over the 3 month period, and that they only use the prefix "real" to indicate that the data or the change in it has been adjusted for inflation using prices chained from 2009, and then calculate all percentage changes in this report from those nonsense 2009 dollar figures, which would be better thought of as a quantity indexes...given the misunderstanding evoked by the press release, all the data that we'll use in reporting on this estimate comes from the pdf for the 3rd estimate of 1st quarter GDP, which is linked to on the sidebar of the BEA press release...specifically, we refer to table 1, which shows the real percentage change in each of the GDP components annually and quarterly since 2012, table 2, which shows the contribution of each of the components to the GDP figures for those months and years, table 3, which shows both the current dollar value and inflation adjusted value of each of the GDP components, table 4, which shows the change in the price indexes for each of the components, and table 5, which shows the quantity indexes for each of the components, which are used to convert current dollar figures into units of output represented by chained dollar amounts...for comparison purposes, the pdf for the 2nd estimate is here..

real personal consumption expenditures (PCE), the largest component of GDP, were revised to show growth at a 2.1% annual rate rather than the 1.8% growth rate reported last month, and since the 1st quarter deflator for PCE was negative 2.0%, that means personal spending in current dollars increased at a 0.1% rate rather than decreased....consumption of real durable goods rose at a 1.3% annual rate, which was revised from a 1.1% rate in the 2nd estimate, and added 0.10 percentage points to GDP, as real output of automotive products consumed fell at a 4.1% rate and offset 4.0% growth in recreational goods and vehicles...real consumption of nondurable goods rose at a 0.8% annual rate, revised from the 0.1% increase reported in the 2nd estimate, and added 0.12 percentage points to 1st quarter growth, as real consumption of food and clothing both decreased, offsetting a 5.7% increase in consumption of gasoline & other fuel...in addition, real consumption of services rose at a 2.7% annual rate, revised from the 2.5% rate reported last month, and added 1.21 percentage points to the final GDP tally...almost all of that was in the increases posted by real consumption of health care and utilities in the colder than normal winter, while recreation services, consumption expenditures of nonprofit institutions serving households, and 'other' consumer services all shrunk during the quarter..

in part due to the upward revision of real private inventories, seasonally adjusted real gross private domestic investment grew at a 2.4% annual rate in the 1st quarter, revised from the 0.7% growth estimate made last month, while the contraction in private fixed investment was revised from -1.3% to -0.3% and hence only subtracted 0.05 percentage points from the quarter's growth rate, rather than 0.21 percentage points subtraction estimated last month...real non-residential fixed investment fell at a 2.0% rate, rather than the 2.8% decrease previously estimated, as the contraction in investment in non-residential structures was revised up from a drop at a 20.8% rate to a drop at a 18.8% rate, which was still largely due to a near 50% pullback in oilfield drilling over the quarter; by itself, that decrease in structures subtracted 0.60 percentage points from the 1st quarter change in GDP...meanwhile, investment in equipment grew at a 2.6% rate, revised from the 2.7% rate previously reported, while growth in investment in intellectual property products was revised up, from growth at a 3.6% rate to growth at a 4.9% rate...growth in residential investment was also revised up from a 5.0% rate to 6.5% growth…after those revisions, investment in equipment added 0.15 percentage points to the 1st quarter growth rate, investment in intellectual property added 0.19 percentage points, while growth in residential investment added 0.21 percentage points to 1st quarter GDP...

meanwhile, real private inventories were revised from the $95.0 billion real growth rate estimated last month to now show inventory growth at an inflation adjusted $99.5 billion rate, which comes after inventories had grown at a $80.0 billion rate in the 4th quarter...hence the $19.5 billion greater inventory growth added 0.45 percentage points to the 1st quarter's growth rate, in contrast to the 0.33 percentage point addition from inventory growth that was reported in the 2nd estimate...since inventories indicate that some of the goods produced during the quarter are still sitting on the shelf, their increase by $19.5 billion means real final sales of GDP were lower by that much, and hence decreased at a 0.6% annual rate in this report, revised from the real final sales decrease at a 1.1% annual rate that was reported with the lower GDP estimate of last month....

the previously reported decrease in real exports was revised lower while the increase in real imports was revised higher by nearly the same amount, and hence the impact from trade figures was little changed in the revision; remember, our exports are added to GDP because they are part of our production that was not consumed or added to investment in our country (& hence not counted in GDP elsewhere), while increased imports subtract from GDP because they represent either consumption or investment that was added to another GDP component that shouldn't have been because it was not produced here....our real exports fell at a 5.9% rate rather than the 7.6% contraction reported in the 2nd estimate, but still subtracted 0.79 percentage points from 1st quarter GDP growth, down from 1.03 percentage points in the previous estimate.... meanwhile, the real growth rate of our imports was revised to 7.1% from the previously reported 5.6% growth rate and subtracted 1.10 percentage points from the quarter's growth rate, an increase from the 0.87.percentage points subtracted in the 2nd estimate...hence the 1.89 percentage points subtracted as a result of our increased trade imbalance were greater than the additions in the other GDP components, and were largely responsible for the 0.2% contraction in 1st quarter GDP reported here...

finally, there were also minor revisions to real government consumption and investment in this 3rd estimate...real federal government consumption and investment was revised to unchanged from the 0.1% growth rate reported in the 2nd estimate, and hence added nothing to 1st quarter GDP...real federal spending for defense was revised to show contraction at a 1.2% rate rather than the 1.0% contraction previously reported, while all other federal consumption and investment grew at a 2.0% rate, which was unrevised from last month...the contraction in real state and local outlays, on the other hand, was revised lower, from the 1.8% shrinkage rate previously reported to contraction at a 1.0% rate, which subtracted 0.12 percentage points from GDP, down from the 0.21 percentage point subtraction indicated by the 2nd estimate..

Estimating the Contribution of May Personal Consumption to 2nd Quarter GDP

the key monthly release in determining the trajectory of GDP is the report on Personal Income and Outlays from theBureau of Economic Analysis, which gives us the monthly data on our personal consumption expenditures (PCE), the major component of GDP, and the PCE price index, which is used to adjust that personal spending data for inflation to give us the relative change in the output of goods and services that our spending indicated...this report also gives us monthly personal income data, disposable personal income, which is income after taxes, and our monthly savings rate...however, the change reported for each of those are not the current monthly change; rather, they're seasonally adjusted and at an annual rate, ie, in today’s case they tell us what income and spending would be for a year if May's adjusted income and spending were extrapolated over an entire year...however, the percentage changes are computed monthly, and in this case of this month's report they give us the percentage change in each annual metric from April to May..

thus, when the opening line of the press release for this report tell us "Personal income increased $79.0 billion, or 0.5 percent, and disposable personal income (DPI) increased $65.5 billion, or 0.5 percent, in May", they mean that the annualized figure for all types of personal income in May, $15,307.0 billion, was$79.0 billion or 0.5% greater than the annualized personal income figure for April; the actual May increase in personal income over April is not given...similarly, disposable personal income, which is income after taxes, rose by 0.5%, from an annual rate of $13,363.8 billion in April to an annual rate of $13,429.3 billion in May...the contributors to the increase in personal income, listed under "Compensation" in the press release, are also annualized amounts, all of which can be seen in the Full Release & Tables (PDF) for this release, which is the document we're referencing...so when the press release says, "Wages and salaries increased $37.1 billion in May" that really means wages and salaries would rise by $37.1 billion over an entire year if May's seasonally adjusted increase were extrapolated over an entire year, just as proprietor's income rose at a $10.5 billion annual rate and interest and dividend income rose at a $22.8 billion annual rate over the month...so you can see what's written in the press release is confusing, and often leads to misreporting the data the same way the BEA describes it.....

for the May personal consumption expenditures (PCE) that will be included in 2nd quarter GDP, BEA reports that they increased by $105.9 billion, or 0.9%, which means the annual rate of PCE rose from $12,189.2 billion in April to $12,295.1 in May; in addition, the April PCE figure was revised up from the originally reported $12,158.9 billion annually...however, before personal consumption expenditures are used in the GDP computation, they must first be adjusted for inflation to give us the real change in consumption, and hence the real change in goods and services that were produced for that consumption....that's done with the price index for personal consumption expenditures, which is included in this report, which is a chained price index based on 2009 prices = 100....looking at Table 9 in the pdf, we see that that index rose from 108.693 in April to 109.032 in May, giving us a month over month inflation rate of 0.31%, which BEA rounds to 0.3%, following the negligible increase in the April PCE price index...applying that inflation adjustment to PCE leaves real PCE up 0.6% in May, following a statistically insignificant increase in April..

however, in estimating the change in PCE that applies to GDP, we have to compare April and May real PCE to the real PCE of the 3 months making up the first quarter...that's done by applying the monthly PCE price index, from Table 9 in the pdf, to the current dollar values of each month's annualized PCE; that gives us monthly PCE in chained 2009 dollars, which aren't really dollar amounts at all but merely the means that the BEA uses to compare one month's or one quarter's real goods and services produced to another....that result is shown in table 7 of the PDF, where April's annualized chained dollar consumption works out to 11,214.7 million and May's annualized chained dollar consumption is 11,276.9, which we can then compare to the 1st quarter's annualized chained dollar PCE of 11,177.9 shown in Table 8, which is identical to the inflation adjusted first quarter PCE from table 3 in the first quarter GDP report we just reviewed...since we dont yet know real PCE for June, one method of estimating the 2nd quarter change in real PCE is to average the two months we do have and compare them to the 1st quarter...when we do that, we find that 2nd quarter real PCE has grown at a 2.5% annual rate for the two months we do have; note the math to get that annual rate: (((11,214.7 +11,276.9 ) / 2) / 11,177.9 ) ^ 4 = 1.02452... given that real PCE is about 68% of GDP, we could thus estimate that growth in real PCE would add 1.67 percentage points to 2nd quarter GDP...and that has to be considered the low end estimate; even if June's PCE is unchanged from May, our equation becomes (((11,214.7 + 2 * 11,276.9 ) / 3) / 11,177.9 ) ^ 4 = 1.02830, meaning PCE growth at a 2.8% annual rate, which would add 1.92 percentage points to 2nd quarter GDP...

Shipments, Inventories and Orders of Durable Goods All Down in May

the Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders (pdf) from the Census Bureau indicated that new orders for manufactured durable goods fell in May by a seasonally adjusted $4.1 billion or 1.8%, to $228.9 billion, the 3rd drop in the last 4 months, while the 0.5% decrease first reported for April has been revised to a drop of 1.5%...new orders for transportation equipment, down 3.5% to $69,484 million, drove the change, as new orders for commercial aircraft fell 8.9%, but even excluding transportation equipment orders, other new orders were still down 0.4%...the widely watched new new orders for nondefense capital goods fell by $5.2 billion or 6.6% to $74.3 billion, but excluding those aircraft orders, new orders for nondefense capital goods were rose 0.4%...

May's seasonally adjusted shipments of durable goods, which will input into 2nd quarter GDP after an inflation adjustment, fell $0.2 billion or 0.1 percent to $239.9 billion, the 4th decrease this year; again, that was due to $0.7 billion or 0.9% lower shipments of transportation equipment, with shipments of commercial aircraft off 4.6%; excluding that volatile sector, other shipments of durables rose 0.5%....meanwhile, the value of seasonally adjusted inventories of durable goods, also a GDP contributor, fell for the first time in 24 months, shrinking $0.8 billion or 0.2 percent to $400.6 billion, as the $0.3 billion drop to $129.9 billion in inventories of transportation equipment was only a minor factor...finally, unfilled orders for manufactured durable goods, which we consider a better measure of industry conditions than the widely watched but volatile new orders, fell by $5.7 billion or 0.5 percent to $1,195.5 billion, the 5th monthly decrease in the past 6 months, as a 0.6% decrease to $798,770 million in the large order book of the transportation sector accounted for more than half the decrease, as unfilled orders for nondefense aircraft fell 0.7% to $608,477 million...nonetheless, unfilled orders for durable goods remained 5.7% higher than they were last May, with only defense durables, machinery and primary metals manufacturers seeing a year over year decrease in their order backlog, with the latter probably due to lower metal prices...

Existing Homes Sales and Prices Rise 5% in May

the National Association of Realtors (NAR) reported that existing home sales rose a seasonally adjusted 5.1% in May, projecting that 5.35 million homes would sell over a year if May sales were extrapolated over an entire year, a rate 9.2% higher than the annual rate projected in May of a year ago... the NAR press release, which is titled Existing-Home Sales Bounce Back Strongly in May as First-time Buyers Return, is in easy to read plain English, so there's no point in our restating what they already report; note though, that at 32%, the percentage of first time home buyers is still well below the 40% pre-housing bust norm...also, since the report is entirely seasonally adjusted and at a fairly meaningless annual rate, we'll take a look at the raw data overview (pdf), which shows that 497,000 homes actually sold in May, up 9.9% from 449,000 in April (which was revised from 445,000) and up 5.1% from the 473,000 homes that sold in May last year, ranging from an increase of 4.6% to 113,000 home sales in the West to a 20.2% increase to 125,000 home sales in the Midwest....that same pdf indicates that the median home selling price for all housing types was $228,700 in May, up from $218,700 in April, and 7.9% higher than the $212,000 median home sales price in May of last year, while the average home sales price was $272,800, up 3.2% from the $256,300 average in April, and up 5.2% from the $259,400 average home sales price of May a year ago...for additional coverage of this report, Bill McBride has two posts with graphs: Existing Home Sales in May: 5.35 million SAAR, Inventory up 1.8% Year-over-year and A Few Random Comments on May Existing Home Sales

New Homes Selling at Annual Rate of 546,000 in May, Give or Take 91,000

the Census report on New Residential Sales for May (pdf) estimated that new single family homes were selling at a seasonally adjusted rate of 546,000 new home sales a year, 2.2 percent (±16.7%)* above the revised April rate of 534,000 new single family homes a year, and 19.5 percent (±19.7%)* above the annual rate that new homes were selling at in May of last year...as you know, the asterisks indicate that based on their small sampling, Census could not be certain whether May new home sales rose or fell from those of April or from those of May a year ago, and the figures in parenthesis represent the 90% confidence range for reported data in this report, which has the largest margin of error of any census construction series...the unadjusted data from Census field reps estimated that 51,000 new homes sold in May, unchanged from April's 51,000, which was revised up from 49,000 reported a month ago....the raw Census data further estimated that the median sales price of new houses sold was $282,800, down from $291,100 in April, while the average sales price was $337,000, up from $333,900 last month, as the number of homes selling for more than $750,000 rose from ~1,000 to ~2,000.... a seasonally adjusted estimate of 206,000 new houses remained for sale at the end of May , which represents a 4.5 month supply at the May sales rate...for more details and graphics about this report, see Bill McBride's two posts, New Home Sales increased to 546,000 Annual Rate in May and Comments on New Home Sales and Prices..

May Industrial Production Shows 2nd Quarter Contraction

industrial production unexpectedly fell 0.2% in May after a revised 0.5% decrease in April but earlier, mostly positive revisions to data going all the way back to December ameliorated the overall negative print...the Fed's G17 release on Industrial production and Capacity Utilization for May showed that the 0.2% decline in seasonally adjusted industrial production came after the April decrease was revised from 0.3% to 0.5%, the March 0.3% decrease was revised to unchanged, the February 0.1% decrease was revised to unchanged, the January 0.3% decrease was revised to a 0.4% decrease, and the December 0.1% decrease was revised to unchanged...the net effect of these revisions is evident in the industrial production index, a benchmark with 2007 production equal to 100.0, which fell to 105.1 in May from the originally reported 105.2 reading in April...the April index was actually revised up from 105.2 to 105.3, while the March index was revised from 105.5 to 105.8, setting up the 0.5% decrease in April...to the extent that this report plays into GDP, the upward revisions of February and March would suggest a stronger than reported 1st quarter, but that would only make the 2nd quarter downturn in April and May that much worse in comparison..

the manufacturing index, which accounts for roughly 70% of the industrial composite, fell by 0.2% in May to 101.3 after rising 0.1% to a unrevised April reading of 101.5 that was 0.1% higher than March, after originally being reported unchanged...for the manufacturing index, the revisions predate December because while the December index was unchanged at 101.9, it is now shown as down 0.1% from November, rather than unchanged as was reported last month...the revised January manufacturing index decrease to 101.2 accounted for the rest of the manufacturing weakness this year; but even with that and the May drop, the manufacturing index is still 1.8% higher than a year ago... ...the mining index, which is now dominated by oil and gas activity, fell 0.3% in May after falling a revised 1.3% in April and a revised 0.3% in March, which were previously reported as declines of 0.7% and 0.1%; as a result of revisions, the mining index at 128.6 is now 0.3% lower than a year earlier, in contrast with the year over year 1.2% increase reported for this sector last month......the utility index, meanwhile, increased 0.2% in May after falling a revised 3.7% in April as this weather influenced index also saw major revisions; April's decrease was originally reported as 1.3% while the March decrease was revised from 5.4% to 1.8%; both months representing a return to more seasonal utility usage after a January and February saw utility output rise 3.3% and 4.9% respectively on much colder than normal weather over most of the US...the May reading of 102.6 now represents a 1.3% increase from a year ago...

in the breakdown of production by market group, the Fed reports that output of consumer goods fell 0.3% as a 0.7% decrease in output of consumer non-durables and an 0.8% decrease in production of consumer energy products outweighed a 1.1% increase in production of consumer durables which was driven by a 1.9% increase in production of automotive products and a 1.0% increase in production of home electronics….production of business equipment rose 0.2% and output of business supplies rose 0.1% while production of defense and space equipment fell 1.3%, output of construction materials fell 0.3%, and output of intermediate materials fell 0.1%....further details for industrial production by market group, including the changes for each of the last 6 months, 3 quarters and 3 years, can be found on Table 1 and Table 4 of the report, with table 1 showing the percentage change from the prior month, quarter or year, and table 4 giving the index and subindex values for the same...

this report also gives us capacity utilization data, which is expressed as the percentage of our plant and equipment that was in use during the month, and which fell from 78.3% in April to 78.1% in May, with the utilization rate for April revised up from 78.2%...seasonally adjusted capacity utilization for manufacturing industries was down 0.2% to 77.0% with April manufacturing utilization unrevised...capacity utilization for mining fell from 83.7% in April to 83.3 in May after the April utilization rate for 'mining' equipment' and oil rigs was revised from 84.0%, while utilities were operating at 80% of capacity during May, up from 79.8% in April but still well below the long term average of 85.9%...for more details on capacity utilization by type of manufacturer, see Table 7: Capacity Utilization: Manufacturing, Mining, and Utilities, which shows the historical capacity utilization figures for a dozen types of durable goods manufacturers, 8 classifications of non-durable manufacturers, mining, utilities, and a handful of other special categories....for more details and graphics to go with this report, see Robert Oak's post May Industrial Production Down -0.2% With April Surprise -0.5% Revision, which included 10 FRED graphs...

May Consumer Prices Rise 0.4% on 10.4% Higher Gasoline

despite modest price changes in most major categorizes, the consumer price index rose by the most in a year in May, as much higher gasoline prices more than offset lower prices for groceries and clothing...the Consumer Price Index Summary from the Bureau of Labor Statistics indicated that seasonally adjusted prices rose 0.4% in May after rising 0.1% in April and by 0.2% in both March and February, while falling in each of the 5 months prior to that...the unadjusted CPI-U, which was set with prices of the 1982 to 1984 period equal to 100, rose to 237.805 in May from 236.599 in April, a level that was still 0.04% lower than the 237.900 reading from May of last year...regionally, prices for urban consumers have risen 1.2% in the West, while they have fallen 0.3% in the Northeast, 0.4% in the South, and 0.8% in the Midwest over the past year, with greater increases within regions in cities of more than 1,500,000 people....since the increase in gasoline prices was the major driver in the overall index increase in May, core prices, which exclude food and energy, rose by just 0.1% in May, as the unadjusted core index rose from 241.802 to 242.119, to a level 1.72% ahead of its year ago reading of 238.029...

the seasonally adjusted energy price index rose by 4.3% in May after falling 1.3% in April; nonetheless, energy prices are still averaging 16.3% lower than they were in April a year ago...prices for energy commodities were 9.6% higher while the index for energy services fell 1.0% in its third monthly decrease in a row....the increase in the energy commodity index was driven by a 10.4% jump in the price of gasoline, the largest component, while fuel oil prices rose 0.7% and prices for other fuels, including propane, kerosene and firewood, averaged a 1.0% decrease…within energy services, the index for utility gas service, down every prior month this year, was unchanged, leaving utility gas priced 15.4% below a year ago, while the electricity price index fell by 1.2% after it was unchanged in April...energy commodities are still priced 24.8% below their year ago levels, with gasoline still 25.0% lower than a year ago, while the energy services price index is now 3.3% lower than last May...

the seasonally adjusted food index was statistically unchanged, just as it was in April, as prices for food at home fell 0.2% and prices for food away from home rose 0.2% on a 0.3% average price increase at fast food joints...among food at home categories, prices for dairy and related products fell 0.7% on a 2.0% drop in ice cream prices and 0.9% lower milk; prices for the meat, poultry, fish, and egg group fell 0.5% on a 2.4% drop in chicken prices, beverages and beverage materials were 0.2% lower on a 1.4% decrease in prices for roast coffee, and prices for cereals and bakery products fell 0.1% on a 0.9% drop in non-white bread prices in part offset by 1.3% higher priced cookies...meanwhile, the fruit and vegetable index rose 0.3% on a 1.2% increase in prices for fresh vegetables, while the index for other foods at home rose 0.1%....only beef prices remain 10% higher than a year ago, with beef roasts up 10.6%, while bacon prices are 17.4% lower, with most of that bacon price drop occurring in the last 4 months...the itemized list for prices of over 100 separate food items is included at the beginning of Table 2, which gives us a line item breakdown for prices of more than 200 CPI items overall...

among the seasonally adjusted core components of the CPI, which rose by 0.1% in May, the composite of all commodities less food and energy commodities fell by 0.1%, while the composite for all services less energy services rose by 0.2%...lower prices for commodities suggests even higher real consumption of them in May that was indicated by last week's 1.2% jump in retail sales, with the caveat that gasoline and food retail sales will be adjusted separately with their appropriate price change index... otherwise, noteworthy price increases in May included a 5.7% increase in airline fares, a 2.6% increase in car & truck rental costs, a 2.2% increase in prices for men's outerwear, a 1.9% increase in tickets for sporting events, and a 1.8% increase in rentals of videos....meanwhile, women's dresses were 2.9% cheaper, women's footwear saw a 2.5% decrease, hotel and motel prices fell 2.6%, sports equipment prices averaged 2.1% lower, and within the household furnishings category, both window coverings and furniture other than bedroom, living room, dining room and kitchen furniture both fell by 2.2%....other than the aforementioned beef, bacon, and energy commodities, only televisions, which were 14.5% cheaper, telephones, which fell by 12.8%, and photographic equipment, which was 10.4% lower, saw their prices change by more than 10% over the past year... for graphics for this report, see Robert Oak's post 'Inflation Returns on Gas', which includes 11 FRED graphs...

May New Housing Starts Fall from April High; Building Permits Highest Since August 2007

the May report on New Residential Construction (pdf) from the Census Bureau estimated that the widely watched count of new housing starts were at a seasonally adjusted annual rate of 1,036,000 in May, which was 11.1 percent (±10.4%) below the revised April estimate of 1,165,000 annually but still 5.1 percent (±11.2%)* above last May's rate of 986,000 housing starts a year...the asterisk indicates that the Census does not have sufficient data to determine whether housing starts rose or fell over the past year, with the figure in parenthesis the most likely range of the change indicated....the annual rates of starts indicated by the headline change are extrapolated from a survey of a small percentage of permit offices visited by Census field agents, which estimated that 96,800 housing units were started in May, down from 105,500 started in April, which was initially estimated at 103,600 starts...single family houses accounted for 65,000 of the May starts, while 31,100 units were started in apartment buildings with 5 or more units...housing starts were down in every region, with starts in the volatile Northeast falling to 12,900 in May after 16,700 units were started in that region in April, 8,000 were started in March, and 2,800 in February…

as we've noted previously, the monthly data on new building permits, with a smaller margin of error, are probably a better monthly indicator of new construction trends than the volatile and often revised starts data... in May, Census estimated new permits were issued at a seasonally adjusted annual rate of 1,275,000, which was 11.8 percent (±1.8%) above the slightly revised April rate of 1,140,000 annually and 25.4 percent (±2.1%) above the rate of permit issuance a year earlier, and the most permits issued in any month since August 2007....those estimates were extrapolated from the unadjusted estimate which showed permits for 113,300 housing units were issued in May, which was up from the estimated 104,800 new permits issued in April, and driven by a jump from 16,200 to 27,100 in new permits issued in the Northeast, all but 4,400 of which were permits for units in multifamily structures...

Retail Sales Increase 1.2% in May; March and April Sales Revised Up

seasonally adjusted retail sales increased in May, and revisions turned April sales positive and made March the strongest report in five years...the Advance Retail Sales Report for May (pdf) from the Census Bureau estimated that our seasonally adjusted retail and food services sales totaled $444.9 billion for the month, which was an increase of 1.2 percent (±0.5%) from the revised April sales of $439.6 billion, and 2.7 percent (±0.9%) above the seasonally adjusted sales in May of last year...April's sales were revised up from $436.8 billion to $439.6 billion, an increase of 0.2% over March, while the March increase over February was revised from a 1.1% gain over February to a 1.5% increase, the largest one month jump in five years...hence, we can expect an upward revision to 1st quarter real PCE, and a positive contribution to GDP from April consumer goods....estimated unadjusted sales in May, extrapolated from surveys of a small sampling of retailers, indicated actual sales rose 5.9%, from $437,250 million in April to $463,124 million in May, while they were up just 1.0% from the $458,705 million of sales in May a year ago, so seasonal adjustments were a factor in this report...

we'll again include the table of monthly and yearly percentage changes in sales by business type taken from the Census pdf, which shows more than we could explain in a few paragraphs.....the first double column below gives us the seasonally adjusted percentage change in sales for each type of retail business type from April to May in the first sub-column, and then the year over year percentage change for those businesses since last May in the 2nd column; the second pair of columns gives us the revision of last month’s April advance monthly percentage change estimates (now called "preliminary") as revised in this report, likewise for each business type, with the March to April change under "Mar 2015 revised" and the revised April 2014 to April 2015 percentage change in the last column shown...for reference, here is what those April percentage changes looked like before this month's revision....

as you can see, every retail business type except drug stores, where sales were off 0.3%, saw an increase in sales in May, with a 2.0% increase to $93,024 million in sales by vehicle and parts dealers underpinning the May sales jump...but even without automotive sales, retail sales still rose by 1.0%, with gas stations, building material and garden supply stores, clothing stores and online (non-store) retailers all seeing sales gains of greater than 1%....although we can't determine how much real sales increased until we get the consumer price data next week, we would suggest that the 3.7% increase in gas station sales was price driven, as market prices for gasoline averaged roughly 5% more in May than in April...

comparing the third column above to our copy of April sales as originally reported last month, we find that the major change driving the revision to April sales was the revision of sales at vehicle and parts dealers, which had been reported as 0.4% lower in the advance report and have now been revised to a 0.7% increase; the 0.1% increase in all other April sales excluding automotive sales was statistically unchanged from the original estimate....other major positive revisions to April include furniture store sales, which were originally reported as 0.9% lower and are now seen to have increased 1.4%, drug stores, where the originally reported 0.4% April sales decrease was revised to an 0.8% increase, restaurant and bars, where the sales increase was revised from 0.7% to 1.1%, and miscellaneous store sales, which were originally reported as unchanged and are now showing a 1.7% increase...on the other hand, sales at building material and garden supply stores, which had been reported up 0.3%, are now shown to have decreased 0.4%, and April department store sales, which were revised from a 2.2% decrease to an even greater 2.9% decline from March...

May Producer Prices Rise 0.5% on Higher Energy

wholesale prices saw their largest increase since September 2012 in May as the seasonally adjusted May Producer Price Index (PPI) for Final Demand showed a 0.5% increase, as final demand for wholesale goods rose by 1.3% while final demand for services increased was unchanged, following a 0.4% decrease in the April PPI, when prices for every component except core services was lower...the year over year change in producer prices remains in negative territory, however, as the annual change inched up from a record low negative 1.3% in April to a negative 1.1% in May....

the index for final demand for goods, aka 'finished goods', rose by 1.3% after falling by 0.7% in April and falling 9 out of the last 10 months, as the index for energy prices rose by 5.9% as wholesale gasoline prices rose 17.0% and wholesale diesel fuel prices rose 18.8% while wholesale residential gas fell 1.6% (see table 4)...the price index for final demand for foods was 0.8% higher, as wholesale egg prices rose by 42.9% on the loss of egg-laying hens to the avian flu while other wholesale food prices were mixed (see table 4)...excluding food and energy, the index for final demand for wholesale core goods rose by 0.2% in May, as a 1.2% increase in wholesale drug prices was the only core price change greater than 1%...

as noted, the index for final demand for services was unchanged in May after falling by 0.1% in April and 0.6% year to date, as the margins for final demand for trade services rose by 0.6% while the index for final demand for transportation and warehousing services slipped 0.1% and the index for final demand for services less trade, transportation, and warehousing services was off 0.2%...the largest increase among final demand for services was a 28.0% increase in margins for TV, video, and photographic equipment and supplies retailing, while margins for major household appliances retailing fell 7.1% in the greatest decrease this month...

this report also showed the price index for processed goods for intermediate demand rose by 1.0% in May after 9 consecutive monthly price declines, which still left intermediate processed goods 7.0% lower priced than a year ago....the May increase was driven by a 5.8% jump in prices for intermediate energy goods, while the index for processed foods and feeds rose 0.5% and the price index for processed goods for intermediate demand less food and energy fell 0.2%...furthermore, the price index for intermediate unprocessed goods rose by 3.3% after rising 0.9% in April, on a 7.7% increase in the price of crude energy materials and a 1.1% increase in the index for unprocessed foodstuffs and feedstuffs, while the index for other raw materials fell 0.1%…nonetheless, this raw materials index still remains 23.3% lower than a year ago, as it saw prices fall 10 out of the 11 months prior to April, only eking out a 0.1% increase in September of last year...

finally, the price index for services for intermediate demand fell by 0.5% in May, reversing the April increase, as a 0.6% increase in the index for trade services for intermediate demand and a 0.1% increase in the index for transportation and warehousing for intermediate demand was offset by a 0.8% decrease in prices for intermediate services less trade, transportation, and warehousing...over the 12 months ended in May, the price index for services for intermediate demand has risen 1.3%...

Wholesale Sales Up 1.6% in April; Inventories Rise 0.4%

after four months of lower sales, largely due to lower prices, the April Wholesale Trade, Sales and Inventories Report (pdf) from the Census Bureau estimated that seasonally adjusted wholesale sales were at $448.3 billion, increasing 1.6 percent (+/-0.7) from the revised March level, while they still remained 3.3 percent (+/-1.4%) lower than wholesale sales of a year earlier...the March preliminary estimate was revised downward by $0.6 billion or a tenth of a percent...wholesale sales of durable goods rose 1.2 percent (+/-0.7%) in April after an increase of 0.9% in March and were 2.4 percent (+/-1.6%) higher than a year earlier, with both automotive and electrical and electronic goods sales 3.2% higher than in March....wholesale sales of nondurable goods rose 2.0 percent (+/-0.7%) after a decrease of 1.4% in March and were 8.2 percent (+/-1.6%) lower than last April. with wholesale sales of farm products up 7.4% and wholesale sales of petroleum and petroleum products up 4.9% on the month...swings in sales of non-durables goods are often due to price changes, as food, farm and oil products account for nearly half of the non durable goods covered by this report; note, however, that the April producer price index was 0.4% lower, with wholesale foods down 0.9% and wholesale energy down 2.9%, so the real increase in April sales was actually greater than the nominal sales increase shown by this report...

the same is true for the increase in seasonally adjusted April wholesale inventories, which were estimated to be valued at $576.9 billion at month end, an increase of 0.4 percent (+/-0.4%) from the revised March level and 4.5 percent (+/-1.4%) higher than April a year ago, with a March upward revision of $0.2 billion or less than 0.1%...April inventories of durable goods were up 0.1 percent (+/-0.4%) from March and were up 6.6 percent (+/-1.6%) from a year earlier, with increases in automotive, lumber, hardware and machinery inventories offsetting lower wholesale inventories of computers and peripheral equipment, professional equipment, metals, and electrical and electronic goods... the value of wholesale inventories of nondurable goods were up 0.8% (+/-0.5%) from March and up 1.1 percent (+/-1.6%) from last April, as inventories of paper and paper products increased 3.9% while the value of inventories of farm products fell by 4.4%...the widely watched inventory to sales ratio fell from 1.30 to 1.29, while it was up from 1.19 a year ago, a metric now distorted by lower prices for petroleum products, which have sales three times greater than what is inventoried...

Business Inventories Rise 0.4% as Sales Rise 0.6%

following the release of retail sales report, Census released the composite Manufacturing and Trade Inventories and Sales report for April, incorporating the revised April retail data, the wholesale data we just looked at, and the full factory orders report of last week, to give us a complete picture of the business contribution to the economy...according to the Census Bureau, total manufacturer's and trade sales were estimated to be valued at a seasonally adjusted $1,318.8 billion at the end of April, 0.6 percent (±0.2%) higher than March revised sales, but down 2.3 percent (±0.5%) from April a year earlier...total March sales were revised up 0.2% to $1,311,121 million, 0.6% higher than February...manufacturer's sales slipped by a statistically insignificant $4 million to $482,428 million, retail trade sales, which exclude bar & restaurant sales from the retail sales reported earlier, rose by 0.1% to $388,156 million, and wholesale sales rose by 1.6% to $448,251 million..

meanwhile, total manufacturer's and trade inventories, a major component of GDP, were estimated to be at a seasonally adjusted $1,793.2 billion at the end of April, 0.4 percent (±0.1%) higher than March and up 2.6 percent (±0.5%) from April a year earlier...seasonally adjusted inventories of manufacturers were estimated to be valued 0.1% higher at $648,988 million, inventories of retailers were estimated to be 0.8% higher and valued at $567,330 million, and inventories of wholesalers were estimated to be valued at $576,886 million at the end of April, up 0.4% from March...as we mentioned, real wholesale inventories, deflated with the negative 0.4% April producer price index, will likely be quite higher, and as we noted last week, so will real factory inventories...retail inventories, on the other hand, will be deflated with goods components of the April CPI, which averaged a 0.1% increase...together, these all suggest a large real inventory build for April that will add to 2nd quarter GDP...the increase in April retail inventories in particular also seems to explain where the March increase in imports went to; while those imports subtracted from 1st quarter GDP, they will add to the 2nd quarter increase to the extent that they are included here...

Job Openings at a Record High in April; Hiring and Firing Falls

the April report on job opening was noteworthy in that the number of job openings reported by private business and government agencies was the highest since the labor departments started tracking them in December 2000....the April Job Openings and Labor Turnover Survey (JOLTS) from the Bureau of Labor Statistics estimated that seasonally adjusted job openings rose by 267,000 to 5,376,000 at the month end, up from 4,417,000 job openings in April a year ago....job openings as a percentage of the employed labor force rose to 3.7% from 3.5% in March and 3.1% a year ago...the increase in openings was entirely in service industries, as job openings in health care and social assistance rose by 100,000 to while openings in construction and manufacturing fell (see table 1) ...like most BLS releases, the press release for report is very readable and also refers us to the associated table for the data cited, linked at the end of the release...

this JOLTS release also reports on labor turnover, which consists of hires and job separations, which in turn is further divided into layoffs and discharges, those who quit, and 'other separations', which includes retirements and deaths....in April, seasonally adjusted new hires totaled 5,007,000, down 71,000 from the 5,088,000 hired or rehired in March, as the hiring rate as a percentage of all employed remained slipped from 3.6% to 3.5%, the same hiring rate as in April a year earlier (details by industry are in table 2).....total separations also fell, from 5,065,000 in March to 4,881,000 in April, as the separations rate as a percentage of the employed also fell from 3.6% to 3.5%, while it was up from 3.3% a year ago (see table 3)...subtracting the 4,881,000 total separations from the total hires of 5,007,000 would imply an increase of 126,000 jobs in April, 95,000 less than the revised payroll job increase of 221,000 for April reported by the BLS establishment survey last week, a difference not outside of the margin of error for either survey...

the Mortgage Monitor for April(pdf) from Black Knight Financial Services (BKFS, formerly LPS Data & Analytics) reported that there were 763,531 home mortgages, or 1.51% of all mortgages outstanding, remaining in the foreclosure process at the end of April, which was down from 782,155, or 1.55% of all active loans that were in foreclosure at the end of March, and down from 2.02% of all mortgages that were in foreclosure in April of last year...these are homeowners who had a foreclosure notice served but whose homes had not yet been seized, and the April "foreclosure inventory" remains the lowest percentage of homes that were in the foreclosure process since late 2007... new foreclosure starts fell to 73,547 from 94,138 in March and from 78,796 in April of 2014, and it’s a metric which has been volatile but which is now the lowest count of new foreclosures since late 2005, and hence is approaching normal...

in addition to homes in foreclosure, March BKFS data showed that 2,415,455 mortgages, or 4.77% of all mortgage loans, or were at least one mortgage payment overdue but not in foreclosure, up from 4.70% of homeowners with a mortgage who were more than 30 days behind in March, but down from the mortgage delinquency rate of 5.62% a year earlier...of those who were delinquent in March, 952,481 home owners, or 1.88% of those with a mortgage, were considered seriously delinquent, which means they were more than 90 days behind on mortgage payments, but still not in foreclosure at the end of the month...hence, a total of 6.28% of homeowners with a mortgage were either late in paying or in foreclosure at the end of April, and 3.39% of them were in serious trouble, ie, either "seriously delinquent" or already in foreclosure at month end...

the first graph below, from page 8 of the mortgage monitor, shows the historical percentage of seriously delinquent or foreclosed homes nationally and for three states monthly for the period between 2005 and the present...the solid black line shows the percentage of such mortgages nationally over that span, which is currently 3.39% and rounded to 3.4% on the graph; the dashed line is the average percentage of of seriously delinquent or in foreclosure mortgages for judicial states, where a court adjudication is necessary for a foreclosure to be completed, now at 4.7% of all judicial state mortgage...then we have the same metric tracked for Florida in green, New Jersey in red, and New York in blue, 3 states which as noted together currently account for 28% of all mortgages that are in serious trouble nationally...as of April, 7.9% percent of all Jersey mortgages were in trouble and 5.1% of them were in foreclosure, a national high; New York still has 6.3% of its mortgaged homeowners in serious trouble, with an 'in foreclosure' percentage of 3.9%, and the seriously troubled mortgages in Florida are now down to 5.6% of their total, with 3.1% of Florida mortgages in foreclosure...in the track of the green line, you can see the long period between 2009 and 2012 when Florida led the nation in troubled mortgages, a period when total delinquencies and foreclosures in Florida consistently amounted to more than 20% of all mortgages in the state..

the next graph, as its heading indicates, shows the current foreclosure pipeline ratio for several states, with the ratio for select judicial states shown in blue and the pipeline ratio for select non-judicial states shown in red...you might recall that the pipeline ratio is a mortgage industry metric indicating how many months the average troubled home loan would remain in the foreclosure process in each state based on recent records, and it is computed by adding those homes that are seriously delinquent to those already in foreclosure and dividing that sum by the average number of completed foreclosures per month in each state over the previous 6 months....what that results in is the average number of months a problem home loan would be in the "foreclosure pipeline" at the current pace of foreclosure in each state, before the foreclosure process on all seriously delinquent homes in that state would be completed....the graph below, from page 9 of the Mortgage Monitor, shows the number of years it would take for the foreclosure backlog to clear in the states with the largest and smallest pipeline ratios for both judicial and non-judicial states...you see that it's a non-judicial state, Massachusetts, which has the longest foreclosure pipeline at 18.9 years at this time; that's because the state's foreclosure prevention law has slowed foreclosures to a snail's pace (the District of Columbia is an odd outlier because they're only completing an average of 10 foreclosures a month; hence, with 5,000 mortgages in trouble, it would take them 43.3 years to clear the backlog at that pace)....on the judicial side of the chart, New York has the longest pipeline ratio at 12.7 years, as their courts are backed up with 6.3% of mortgages in serious trouble; even so, they are now processing foreclosures much faster than in 2011, when both New York and New Jersey saw foreclosure backlogs that would take over 50 years to clear...on the other end of the scale, Florida at 2.9 years now has the lowest pipeline ratio of the judicial states, despite their high percentage of mortgages in trouble; that's because the state has used foreclosure fraud settlement funds to hire retired judges solely for the purpose of steamrolling as many delinquent homeowners in as short as time as possible...

May Sees Addition of 280,000 Payroll Jobs and Unemployment Rate Rise to 5.5%

the Employment Situation Summary for May from the BLS indicated that employers added a seasonally adjusted 280,000 jobs, the largest increase this year and a bit more than 20.000 above the average of last year, which saw the strongest job creation of the millennium....in addition, the payroll jobs increase for March was revised up from 85,000 to 119,000 while the April report was revised slightly from 223,000 added jobs to 221,000, so on net this report shows 312,000 more payroll jobs than last months...job gains were spread across most sectors, with only the resource exploitation industries seeing a major decline, as 16,900 jobs were shed in 'mining support activities', most likely in the oil patch...average hourly earnings for all payroll employees, an area of weakness in recent reports, rose by 8 cents to $24.96, which is 2.3% higher than last May, keeping the average worker ahead of weak consumer inflation...

the unemployment rate inched up, from 5.4% to 5.5%, but for the right reason, as the number who were counted in the labor force rose by 397,000, as a net of 208,000 who weren't counted in April either found work or returned to the job market...hence, while the count of the employed rose by 272,000, the count of the unemployed also rose by 125,000, just barely enough to account for the jobless rate uptick...the labor force participation rate rose for the second month in a row, from 62.8% in April to 62.9% in May, while the employment-population ratio, the equivalent of an employment rate, rose from 59.3% to 59.4%...while total part time employment was down by 95,000, the count of those who reported they were working part time but wanted full time work rose by 72,000, and hence the alternative measure of unemployment, U-6, which includes those "employed part time for economic reasons", remained unchanged at 10.8%...

the BLS employment situation press release itself is very readable, so you can get more details from there...note that almost every paragraph in that release points to one or more of the tables that are linked to on the bottom of the release, and those are also on a separate html page here that you can open it along side the press release to avoid the need to scroll up and down the page....thus, when you encounter a line in the report such as "The number of unemployed new entrants edged up by 103,000 in May but is about unchanged over the year. Unemployed new entrants are those who never previously worked. (See table A-11.)" you can quickly open Table A-11, where you will find all the reasons given by those who reported they were unemployed in May...

Negligible Decrease in April PCE is Small Increase Over 1st Quarter

the key monthly release in determining the trajectory of GDP is the report on Personal Income and Outlays from theBureau of Economic Analysis, which gives us the monthly data on our personal consumption expenditures (PCE), the major component of GDP, and the PCE price index, which is used to adjust that personal spending data for inflation to give us the relative change in the output of goods and services that our spending indicated...the report also gives us monthly personal income data, disposable personal income, which is income after taxes, and our monthly savings rate...however, the change reported for each of those are not the current monthly change; rather, they're seasonally adjusted and at an annual rate, ie, they tell us what income and spending would be for a year if April's adjusted income and spending were extrapolated over an entire year...confusingly, however, the percentage changes are computed monthly, and in this case of this month's report they give us the percentage change in each metric from March to April...

thus, when the opening line of the press release for this report tell us "Personal income increased $59.4 billion, or 0.4 percent, and disposable personal income (DPI) increased $48.8 billion, or 0.4 percent, in April", they mean that the annualized figure for all types of personal income in April, $15,211.7 billion, was$59.4 billion or 0.4% greater than the annualized personal income figure for March; the actual April increase in personal income over March is not given...similarly, disposable personal income, which is income after taxes, rose at by 0.4%, from an annual rate of $13,304.6 billion in March to an annual rate of $13,353.4 billion in April...the contributors to the increase in personal income, listed under "Compensation" in the press release, are also annualized amounts, all of which can be seen in the Full Release & Tables (PDF) for this release, the document we'll be referencing...so when the press release says, "Wages and salaries increased $17.7 billion in April" that really means wages and salaries would rise by $17.7 billion over an entire year if April's seasonally adjusted increase were extrapolated over an entire year, just as interest and dividend income, the largest contributor to the increase, rose at a $26.6 billion annual rate in April...so you can see what's written in the press release is confusing, and often leads to misreporting the data the same way the BEA describes it...

for the personal consumption expenditures (PCE) that we're interested in today, BEA reports that they decreased by $2.6 billion, or less than 0.1 percent, which means the annual rate of PCE fell from $12,161.5 billion in March to $12,158.9 in April; in addition, the March PCE figure was revised up from the originally reported $12,160.5 billion annually...however, before personal consumption expenditures are used in the GDP computation, they must first be adjusted for inflation to give us the real change in consumption, and hence the real change in goods and services that were produced for that consumption....that's done with the price index for personal consumption expenditures, which is included in this report, which is a chained price index based on 2009 prices = 100....looking at Table 9 in the pdf, we see that that index rose from 108.622 in March to 108.649 in April, giving us a month over month inflation rate of 0.02%, which BEA reports as an increase of “less than 0.1 percent”, following the increase of 0.2 percent in March...applying that tiny inflation adjustment to PCE still leaves real PCE down less than 0.1%, which BEA reports as a 0.0% change in the tables...note that when those price indexes are applied to a given month's annualized PCE, it yields that month's annualized real PCE in chained 2009 dollars, which aren't really dollar amounts at all but merely the means that the BEA uses to compare one month's or one quarter's real goods and services produced to another....that result is shown in table 7 of the PDF, where April's chained dollar consumption works out to 11,191.3 million, 0.04% less than March's 11,196.5 million, which the BEA reports as a 0.0% change in real PCE...

however, in estimating the change in GDP, the month over month change doesn't tell us much; as we have to compare April to the first quarter real PCE of all 3 months: January and February and March...while this report shows those amounts monthly, the BEA also provides the annualized chained dollar PCE for those three months in the GDP report , as revised last Friday...in table 3 of the pdf for the GDP report, we see that the annualized real PCE for the 1st quarter was represented by 11,169.6 million in chained 2009 dollars...if we use the real April PCE as a 2nd quarter amount, we find that real April PCE has grown at a 0.078% rate compared to the first quarter, and given that real PCE is about 68% of GDP, we could thus estimate that April PCE would add 0.05 percentage points to the 2nd quarter GDP growth rate...

our April trade deficit fell by 19% from the 7 year high set in March when waiting ships were unloaded en masse in the wake of the end of the west coast dock strike...the Census report on our international trade in goods and services for April showed that our seasonally adjusted goods and services trade deficit fell by $9.7 billion to $40.9 billion in April from a revised March deficit of $50.6 billion, which had itself risen from the strike depressed level of $37.2 billion in February...our April exports rose $1.9 billion to $189.9 billion on a $1.9 billion increase to $129.0 billion in our exports of goods and an increase of less than $0.1 billion to $60.9 billion in our exports of services, while our imports fell $7.8 billion to $230.8 billion on a $7.4 billion decrease to $189.6 billion in our imports of goods and a $0.4 billion decrease to $41.1 billion in our imports of services....

increased exports of capital goods accounted for the entire increase in our exports and then some, as they rose $2,066 million to $47,323 million on a $982 million increase in exports of civilian aircraft and a $552 million increase in our exports of telecommunications equipment...we also saw an increase of $635 million to $36,889 million in our exports of industrial supplies and materials as our exports of fuel oil rose $412 million and our exports of crude oil rose $279 million...in other categories, our exports of automotive products rose by $161 million to $12,523 million, our exports of foods feeds and beverages fell by $188 million to $10,791 million, our exports of consumer goods fell $79 million to $16,036 million, and our exports of goods not categorized by end use fell $486 million to $4,685 million...

much of the April drop in imports was simply the reversal of the March surge; imports of consumer goods, for instance, fell by $4,859 million to $48,954 million after they rose $9,013 million in March from a strike depressed February level...lower imports of consumer items that had seen an import surge of over 20% in March, such as cellphones, furniture footware and clothing, led the April decline...every other import end use category saw declines as well: the value of imports of capital goods fell by $635 million to 451,500 million on a $407 million decrease in imports of industrial machines and a $410 million decrease in imports of telecom equipment; imports of industrial supplies and materials fell by $613 million to $41,564 million on a $331 million drop in our natural gas imports; imports of automotive products fell by $372 million to $28,610 million; imports of foods, feeds, and beverages fell by $70 million to $10,911 million on a $140 million drop in our imports of fish and shellfish, and out imports of goods not categorized by end use fell by $974 million to $6,344 million..

normally, to determine how these April changes in trade will effect 2nd quarter GDP, we first would have to adjust each item for inflation with the appropriate price change for that item or category from the Import and Export Price Indexes for February to get the quantity of items traded, quite a tedious process...however, exhibit 10 in the pdf for this report gives us monthly goods trade figures by end use category and in total in chained 2009 dollars, the same inflation adjustment used by the BEA to compute trade figures, except they are not annualized....to compute the April change in GDP terms, we have to annualize it, which we will again do by treating April as the sole 2nd quarter figure...thus, our exports averaged $119,172 million monthly in the first quarter, while April exports were $121,602 million; taking April exports as a proxy for the 2nd quarter, that suggests our exports are rising at an 8.4% annual rate so far this quarter...similarly. our imports averaged $176,770 million monthly in the first quarter while April imports were $178,782 million; taking April imports as a proxy for the 2nd quarter, that means our imports rose at a 4.6% annual rate so far this quarter...as you'll recall, exports add to GDP because they are domestic production that was not counted in any other GDP component, while imports subtract from GDP because they represent the portion of consumption or investment that occurred during the quarter that was not produced domestically....exports increasing at an 8.4% in the 2nd quarter would more than reverse their 7.6% 1st quarter rate of decline and would add ~1.28 percentage points to GDP, while imports increasing at a 4.6% rate would be less than the 5.6% rate of increase imports saw in the first quarter and would subtract ~.71 percentage points from GDP....so if the April trade deficit persists, the improvement in net trade will add about .57 percentage points to GDP..

in the report on April construction spending (pdf), the Census Bureau estimated that our seasonally adjusted construction spending would work out to $967.9 billion annually if extrapolated over an entire year, which was 2.2 percent (±1.5%) above the revised estimate of $984.0 billion annually in March and 4.8 percent (±2.0%) above the estimated adjusted and annualized level of construction spending of April last year...the March spending estimate was revised from $967 billion to $984.0 billion, which suggests an incremental upward revision to first quarter GDP.....private construction spending was at a seasonally adjusted annual rate of $725.2 billion, 1.8 percent (±1.2%) above the revised March estimate, with residential spending rising to an annual rate of $353.1 billion in April, 0.6 percent (±1.3%)* above the revised March estimate, while private non-residential construction spending rose 3.1 percent (±1.2%) to $372.1 billion...meanwhile, public construction spending was estimated at a rate of $280.9 billion annually, 3.3 percent (±2.8%) above the revised March estimate, with highway and street spending up 8.5% while spending for public utilities was off 15.0% for the month and down 31.3% since last year...

construction spending inputs into 3 subcomponents of GDP; investment in private non-residential structures, investment in residential structures, and into government investment outlays, for both state and local and Federal governments...to adjust those varied categories of spending for inflation to give us construction in real terms, the National Income and Product Accounts Handbook, Chapter 6 (pdf), lists a multitude of privately published deflators for the various components of non-residential investment, while they use the Census Bureau construction price indexes for new one-family houses under construction and for new multi-family homes under construction for residential investment...the later indicates that prices for residential construction fell by 0.2% in April; for the other types of construction, we'll simplify and just use the same overall deflator as was used in the 1st quarter GDP release of last week...Table 4 there showed prices for structures falling 0.8% annually, or a one month deflator of about -0.066%, which is the deflator we'll use in estimating real public construction and real non-residential construction....note that because the GDP categories for construction spending include brokers’ commissions, title insurance, state and local taxes, attorney fees, title escrow fees, fees for surveys and engineering services, and remodeling not captured by this report, our estimate is limited to the data included in this report...

the last report from this week that we'll look at with an eye as to how it might affect first quarter growth figures is the Full Report on Manufacturers' Shipments, Inventories and Orders for April( pdf) from the Census Bureau, which is usually reported on as just "factory orders" in the business press, although new or unfilled orders aren't our concern today, as we'll be looking at shipments of equipment and inventories...this report did indicate that the value of new orders for manufactured goods fell again, for the eighth time in the last nine months, decreasing $1.8 billion or 0.4 percent to $476.7 billion, as the value of new orders for non-durable goods rose by 0.2% while the value of new orders for durable goods was revised from last week's reported 0.5% decrease to show a 1.0% drop...unfilled orders outstanding, meanwhile, were down for the 4th month of the past five, falling by $1.1 billion or 0.1% to $1,202.4 billion...while the value of new factory orders is now 5.6% lower than a year ago, in part due to falling prices for refinery products and other commodity based manufactures, total unfilled factory orders are still running 6.9% above those of a year ago, so there shouldn't be any general factory slowdown in the offing as a result of recent new orders downturn...

factory shipments were statistically unchanged in April, slipping just $4 million to $482,428 million, after rising 0.5% in March and 0.1% in February...shipments of durable goods fell by 0.2%, largely on a 0.3% decrease in shipments of transportation equipment, as shipments of light trucks & utility vehicles fell by 4.3% and shipments of defense aircraft fell 3.9%...however, the value of key groups of capital equipment were higher, with shipments of machinery rising 0.4% on a 15.3% increase in shipments of industrial machinery and shipments of computers and electronic products inching up 0.1%...remember, though, that these are nominal values, and before they can be applied to GDP they must be converted into quantities by adjusting for inflation...that can be estimated with the price changes for wide variety of equipment from the April producer prices report, but one would have to do it on an item by item basis for an accurate take...for instance, while the value of the shipments of metalworking machinery was 2.4% higher in April, prices for such machines rose 2.2%, so the real increase in investment in this type of equipment was on the order of 0.2%...furthermore, in figuring the change in investment in equipment, the BEA will make an adjustment in each item of equipment back to 2009 dollars, and then compare those 2009 dollar values of second quarter spending to the first; not something we can approximate easily without knowing the weighting of all the BEA’s components...

the value of April factory inventories, meanwhile, rose by $0.6 billion or 0.1 percent to $649.0 billion in April after a 0.1% decrease March...the change in factory inventories is included directly in GDP, along with other retail, wholesale and farm inventories, and we want to know if the inflation adjusted change in inventories in April is greater than or less than the change in inventories was in the 1st quarter, and by how much...however, as we explained over 2 months ago, companies use a wide variety of accounting methods in valuing their inventories, such as LIFO, FIFO, average cost or weighted average cost, all of which the BEA adjusts for before including them in a quarter over quarter GDP comparison of real inventories (see the National Income and Product Accounts Handbook, Chapter 7 (22 pp pdf), for details), and furthermore, some of that inventory does not move off the “shelf” month to month and hence is not revalued from month to month...hence, while we can use deflators from the producer price index to arrive at a partial estimate, it still leaves us far short of anything accurate...in April, producer prices for finished goods were down 0.4%, with prices for major non-durable inventory categories, such as food, energy, and industrial chemicals, down by 0.9%, 2.9%, and 2.8% respectively....that suggests that real April factory inventories rose by something on the order of a half percent over March, and by even more over that of the first quarter, indicating a larger than normal boost to GDP from this single month's data.. ____

in sum, we can see over 2 percentage points added to 2nd quarter GDP if our real trade balance and construction investment are maintained at the April pace, while real personal consumption expenditures would contribute almost nothing, which would be unheard of outside of a recession....putting a number on inventories is more problematic, especially with data for retail, wholesale and farm inventories yet to be released, and we're still missing data for several other categories of investment and for government outlays...nonetheless, the consensus for growth at a 2.6% rate does not seem too far off the mark, while the GDPNow forecast from the Atlanta Fed, which accurately forecast 1st quarter GDP, comes up short this time in forecasting growth at a 1.1% rate, as they use new housing starts as a proxy for construction.. ________________

note on the graphs used here

in March a year ago the St Louis Fed, home to the FRED graphs, changed their graphs to an interactive format, which apparently necessitated eliminating some of the incompatible options which we had used in creating our static graphs before then...as a result, many of the FRED graphs we've included on this website previous to that date, all of which were all created and stored at the FRED site and which we'd always hyperlinked back there, were reformatted, which in many cases changed our bar graphs to line graphs, and some cases rendered them unreadable... however, you can still click the text links we've always used in referring to them to view versions of our graphs as interactive graphs on the FRED site, or in the case where an older graph has gone missing, click on the blank space where it had been in order to view it in the new format....